I recently purchased a 2005 Jayco Eagle from an individual. He had trouble getting the awning to seat correctly when retracted. After a couple of months of ownership I figured out why. Jayco mounted the top rail too low so when they mounted the bottom attach point at the lowest point it was too high, or near the top of the awning, for correct operation.If you look closely at the photo, the silver aluminum slider at the very bottom pops out of the track and has to be hammered back in. IMO I have three choices and wonder if anyone has had the problem and what they did to fix this. I'm a kind of a DIY guy.
1. relocate the top rail up about 2 inches(over the stripes, new holes in the side)
2. Cut the forward vertical slides off about 2 inches.
3. Flip the upper awning mount, which would raise the awing 3 inches in front. If this is the best option I need to know where to get the extended pop rivet for reattaching the inside slide/lock back to the upper bracket.

Eddie, I would hold off on doing what your suggesting until you get few more opinions. I had a manual awning for a number of years and from what I can see in your picture there are a couple of things that seem not quite right. To begin with and I don't know if it matters but the handle on the outer arm looks like it is mounted on the inside which I have never seen before but I don't see why it would make a difference. Secondly the other arm looks like it has not been lowered enough by use of the handle, so when the awning is retracted the outer arm lines up with the inner one. You say you've owned this RV for a few months,and the prior owner had issues with it. Did he show you how it operated and where he had the issues? I have read what you wrote several times and I'm wondering if your aware how outer arm is capable of changing its length and in doing so also enables it to be matched up with the inner arm when it is rolled up and put away. This is what I see wrong in your picture. I hope this helps explain what you need to do. If I'm missing something Im sorry for over simplifying it.

Murphie is right don't do anything yet. From what I can tell you don't have the main arm retracted all the way. I can see the paint missing at the bottom of the arm where the outerarm arm wore it off when retracted properly.